Medicare Malady #02-07: Government "Negotiation" = Higher Drug Prices

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The Congressional Budget Office yesterday threw
cold water on House Democrats all ready to make the feds
negotiate Medicare drug prices. Turns out, according to CBO, the
government can't negotiate lower prices unless it restricts
the number and types of drugs it covers-something seniors aren't at
all anxious to see.

The drug-price controllers got a second dousing today, when
Heritage Foundation health care expert Ed Haislmaier testified
before the Senate Finance Committee. Haislmaier said that
government negotiations might actually increase the total
cost of the program - possibly by as much as 20 percent.

Haislmaier referred to recent data from CBO and the Centers for
Medicare and Medicaid Services (CMS) indicating that the current
Medicare drug program-which relies on private sector competition
and consumer choice-has reduced program costs for the poorest
seniors by some 23 percent below what had been projected based on
the experience of state Medicaid programs -

which mandate price discounts. According to CBO, the
current approach is projected to save state taxpayers $12 billion
over the next five years.

The chart below summarizes the evidence. Based on a year's
experience with providing drug coverage for dual-eligibles (the
nation's poorest seniors, eligible for drug coverage under both
Medicaid and Medicare), both CMS and CBO revised their cost
estimates sharply downwards. It seems competition and
consumer choice are turning in a better cost control performance
then government mandated discounts.

Click to View Chart

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or call Heritage Media Services at (202) 675-1761.
("Medicare Maladies" is a regular feature, first launched in 2003
and revived in 2007, from The Heritage Foundation. Sad to say,
there's another malady coming your way soon. Other "maladies" are
also available on heritage.org.)